report

• support the mission and objective

◦ KPIs and critical success factors
• best practice relevant information for decision making
◦ who are users, are their concerns answeared
◦ financial and non financial information – balanced score card
▪ internal and external information – external benchmarks
▪ financial and non financial information
• well presented
proposed KPIs/support to the mission
• restate CSF
• link to the KPIs
• strengths and weaknesses
Incremental Rolling

Contunious Flexi

Activity based Zero based

Report Value based management

Activity based management Burns and scarpen

Target costing KPIs and CSF

support to the mission/objective
balance scorecard measures

Building block Performance pyramid

• service organisation levels support each other towards achieving the
organisation objective
• three concepts
link day to day operational performance with overall
1. dimensions
strategic performance
– results
competitive performance
financial performance demonstration
– determinants • hierarchy of performance targets and measures
• link operational performance to the overall strategic
quality of service
performance
flexibility • different departments at all levels and contribution
resource utilization • non financial measures
innovation • identify performance drivers
2. standards – targets to be measured
◦ owneship
◦ achieavable
◦ fair
3. rewards – motivate staff, be in their area of
responsibility, and it should be clear what
goals staff is working towrds
◦ clarity
◦ controllability
◦ motivation
rewards
1. describe
2. evaluate existing using
3. suggest improvements

Balanced score card Performance measurement problems

problems implementing gaming
• appropriate measures myopia
• too many measures ossification
• innovation and learning difficult to measure measure fixation
 • conflicting measures over optimisation
1. general explanation of model mock
2. evaluate performance using 51, 53
3. how it can help reach the goal of achieving
mission 53
4. each determinant 52, 58

Setting targets Information systems ant developments in technology

balance between those that are too easy – and therefore
dont require any effort and those that are too difficult and
operational – information provided to supervisors, line
therefore demotivating as staff feel they can never
managers and other employees at a day to day operational
achieve them
level
• usually detailed and most of it will be non
financial
• it guides day to day operation
tactical – associated with planning and controlling
activities within framework of budgets and or plans
• help management make decisions for
planning/monitoring actual performance against
budgets
• manage spending and efficiency
strategic – information for strategic decision making, often
relates to long term objective and performance, and
matters external to the organisation

financial and non financial information

non financial
• drive the financial performance,
financial

wy lean principle may not lead to improvements

interpretation and application

Reponsibility accounting be judged on their areas of

responsibility, that is on the areas they can influence or
control
accountability – be held responsible for

management control system

control mechanism
1. action control
ensure only actions that are desirable occur

sets limit on employee behaviour

define actions that are acceptable and

unacceptable and reward actions that are
considered acceptable and punish unacceptable
 2. personnel control
hep employees do the good job, by ensuring they
have capabilities and resources they need to do
the job,

involves recruiting, trainning, clear job designs

1. cultural control
2.

3. results control
collecting and reporting information about the
outcomes f work effort

EVA ROI
based on economic profit/cashflow
– based on historic accounts
• determine whether shareholder value is added
or lost
disadvantages
focus on short term
historical data might be of limited use for the future
number of adjustments – complicated
absolute measure

RI ROCE
centre profits after interest cost, overall return on general capital providers`
• take investments earning above cost of capital
• absolute measure, so not for comparisons
• does not relate the ize of income to the level of
investment
short term and long term aspects
• promotes shorttermism might lead to projects
that take time to become profitable to be rejected

EBITDA NPV and use of cashflows

use of cashflows allows the future make allowance for risk
through the use of discounting factor
cashflows are safest indicator of wealth as opposed to
profit

IRR/MIRR Asset rate of return

IRR ignores size of investment
does not incorporate discount factors that differ over the
period of the project/investment
• compare IRR to the cost of capital, IRR should
be greater

EVA vs profit based measures

assumption
• accounting and economic depreciation and
amortisation
• development costs
• leases
• provisions
• non cash expences
• interest paid

cost of capital – adjustment

•

ROI RI EVA

Profit based weakness
Easily understood as information used promotes short termism, discourage
is available in publised accounts
short term measure, discourage
investment in assets
difficult to compare where
replacements methods are not the
same
Profit based weakness
investment
doesn’t relate the size of the
investment to the income
Requires adjustment of profit which
can be difficult, will require tome and
cost too of adjusting this profit
also estimation of WACC can be
difficult if the company is not listed
cost such as development are added to
assets and therefore can encourage
investment in assets which in turn is
long term benefitial
based on historical data might have
limited use for the future
absolute can not be benchmarked

EVA vs RI
• profit based
• replacement cost of net assets

Benchmarking Profitability, liquidity and gearing

problems
• accuracy or reliability of the comperator
information
• what activities to benchmark
• implies there is only one way of doing things
• value of benchmarking, cost value analysis be
made
• ethical issues,
Profitability, gearing,liquidity
profitability measures
• can often be insufficient to highlight the issues relating to the organisation survival
liquidity
• relates to level of funds that can be available to pay for liabilities as the fall due
• relates to the short term
gearing
1. financial gearing – measured by ratio of debt to equity, debt is a fixed liability while equity relate to the capital that
needs to generate funds to pay for liabilities
highlights financial risk
• high – company has to cover too large debt from the little capital – financial risk
• interest cover – ratio of profit to interests payables, measures whether enough returns are generated to cover
long term liabilities
2. operational gearing – ratio of fixed cost to variable cost, by comparing contribution to operating profit
highlights business risk
• high – proportion of fixed cost to a proportion of its total cost is too high,
• risk because for example while variable cost will fall when revenue falls, fixed cost will not, therefore an
organisation with high operational gearing might not be able to cover its fixed cost when revenue falls
• if revenue falls it will quickly become loss making

Predicting failure

Qualitative model – argenti Quantitative model – Z score

seeks to rate the risk of poor management that may lead to decision – more is good – 1.8 to 3
failure, takes qualitative problems associated with
1.2 + 1.4 + 3.3 + 0.6 + 1 = 7.5
management and assigns a score for each
– financially sound: 3 and more
total score = 25, less is better
– risk of failure: 1.8 and less
risk – more than 24
– green area: 1.8 – 3
not at risk – 0 to 18
• 2.7 – 3 – probable survival
green – 18 to 25
• 1.8 – 2.7 – probable failure, dramatic action
1. defects – management and accounting 15
needed
2. mistakes 15
1. W – working capital
3. symptoms 0
2. R – retained earnings
3. P – PBIT
4. E – equity
• highlights areas of failure
5. S – sales
• was formed based on the study of US
• information used available in the financial
manufacturing companies in the 80s
statements
• subjective
• state that the company has the probalility of
• does not state when the company will fail failing in the next 2 years or not
• does not highlight causes of failure and thus not
where to improve
EVA adjustments
1. value building expenditure
◦ marketing
◦ promotions,
◦ R&D,
◦ staff trainnings,
◦ and other epenses expected to bring future
value are added back to profit if subtracted,
and should adjust working capital
therefore market capitalised of 23.1 should be deducted
from the operating profit and added to capital employed

2. depreciation and armotisation

3. non cash expenses
4. provisions
◦ inventory write offs
◦ doubtful debts
◦ deffered tax provisions, are said to be over
prudence on the side of accounting
5. operating leases
EVA treats all leases as finance lease,
capital employed
is based on economic value of capital at the beginning of
the relevant period, which will be the accurate reflection
of the base upon which shareholders expect their returns
to accrue

adjustments
1. less non interest nearing activities
2. adjust for net replacement cost of the assets
3. add cumulative armotised goodwill
4. add NBV of capitilised development costs
 Environmental management accounting
accounting techniques – identification and management of environmental costs

1. input/out put analysis 2. Flow cost

combines material flows with organisational
records material flows and balance them with
structure
outputs on the base that what comes in must
come out or be stored

3. Environmental activity based costing 4. Life cycle costing

distinguish between environmental related costs records complete cost from beginning to end,
and environmental driven cost taking into account the environmental impacts
through out the life of the product
◦ environment related – attributed to joint
environment cost centres
the system should be capable of capturing all the
◦ environment driven – hidden in general cost
overheads cost, do not relate to a specific
environmental joint cost centre
Cost categories that would aid transparency in environmental reporting
• operating costs
cost of waste through inefficiencies – will help company reduce the amount of waste generated by the process
waste filtration
• decommissioning cost
have the great impact on the shareholder value generated by the project, can also make significant demands
on resources
• reporting on cost
• reputational costsq

Decision rules – risk and uncertainty

Maximin Maximax Minimax regret

risk averse best possible results – risk seeker minimise regret from making the
can be conservative and
wrong decision
• • overoptimistic
defensive aiming to avoid the
worst outcome without taking • ignores probabilities
account of the opportunities of
maximising profits
• ignores probability of each
outcome taking place

Complex business structures

Joint ventures Strategic alliances

problems arise from remain independent, therefore retain their businesses
practices, cultures and management objectives
• culture differences
problems
• different interests focus, long term vs short term
• varying cultures
• measure of contribution of intangible assets
• reluctant to share to much information about
their business

Multinational companies Network companies

local currencies and tax regimes before dealing with the
consolidation requirements

Virtual organisations Divisionalised organisation

Value
shows the business activities are organised and and linked

Six sigma Problems of joint venture

• decision making – problem of reaching
consensus where interests are not the same
• goals and objectives – performance measures
• management styles – conflicting cultures
• sharing capabilities and information
▪ valuing contribution of individual firm,
if one firm could feel that they are
contributing more than the other that
can lead to a conflict
 Business process re-engineering Fundamental redesign of the business process to achieve
dramatic improvements in key measurements such as,
characteristics
quality, customer satisfaction, cost, efficiency – speed and
– combine jobs service
– workers make decisions • focus on customer focused outcomes–
– perform steps in a logical order • people who use the output should be involved in
the process
– work is performed where it makes most sense
• information processing included in the work that
– checks and controls reduced and quality built in
that produces the information
– advantages of centralisation and decentralisation
• capture data at source
– personnel who use the output should perform the
• people should be be self managing, users of
process
process make decision
– capture information at source
• geographically dispersed resources be used as
– information processing be included in the work which though they are centralised
produces the information
• parallel activities be linked rather than
• shift fro functional departments to process teams integrated
• multi-skilling – skill training needs
• organisational hierachy – requires delayering Principles
• change management –
• MIS – measures be built around process rather improvements it might bring
than department
• rapid information processing and reduction of
• value adding focus errors
• works well with ABC
performance targets to ensure re-engineering process
enable achievement of objectives
implications
➢ performance measurement – be built around
processes and not departments why staff might be concerned about introduction of BPR
and its implications
➢ reporting – identify where value is being added
➢ activity based costing
➢ structure – things based on process teams and
not departments

trainee@lia.org.ls kaneli.lintho@lia.org.ls 62342115

callisto – complex
performance of employees and strategic partners

• IT systems – rely on IT systems for collecting data, and handling from remote partners and employees, large
data base for storing information, system that staff and suppliers use be compatible

• measuring employees performance

business process